Prime minister Narendra Modi, during his forthcoming visit to Brazil, on July 15 and16, is expected, along with other BRICS leaders, to close the accord on the new BRICS development bank (BDB) and the BRICS contingent reserve agreement (BCRA). What made the BRICS members set up the BDB (and the BCRA), which is an apparent challenge to the current global financial architecture led by the World Bank and IMF? What is it that the BDB (and BCRA) could do differently from the Bretton Woods institutions, and why?

The Bretton Woods multilateral financial institutions were set up towards the end of World War II, initially to help rebuild war-devastated Europe, and later, from the 1960s, to provide development finance to newly independent, formerly colonised countries as well as to provide liquidity to countries during macroeconomic crises. Their governance arrangements (voting shares) reflected relative economic and political power among the initial members and was overwhelmingly in favour of the US and the UK. Even after several cycles of reform, since 2010, the developed countries hold about 65%, middle-income countries, which include the BRICs, about 35%, and low-income countries, just 4.46%. Thus, at present China holds 5.26%, India 3.06%, and the US 15.04% voting shares, against GDP at PPP shares in 2011 of 14.89%, 6.35%, and 17.13%, respectively. The majority coalitions of voting shares at these institutions determine all funding decisions as well as attendant conditionalities and are clearly dominated by developed countries. Thus, which programs are funded, how much, on what terms, who receives the money, how it may be spent, are all determined by the relative voting strengths. This is despite the fact that, at present, the major part of resources lent are not derived from the paid up capital reflected in voting shares, but are actually accumulations of surplus from loan repayments, principally from developing countries. Also, it must be remembered that the multilateral financial institutions are not commercial institutions, interested in maximising shareholder financial returns, but are essentially vehicles for pursuing the economic and strategic interests of the main shareholders (“donors”). In the past, these institutions have been the principal instrument for pushing the “Washington consensus” (fiscal discipline, elimination of subsidies, tax reform, market-determined interest and exchange rates, trade and investment liberalisation but not free movement of labour, privatisation of public enterprises, deregulation, and secure private property rights), besides imposition of labour, social and environmental standards, with mixed results for